On February 7, HUD issued a proposed rule for the Public
Housing Capital Fund program. The rule essentially conforms HUD regulations
affecting public housing capital activities with the program structure
authorized by the Quality Housing and Work Responsibility Act of 1998 (QHWRA).
Regulations implementing various parts of QHWRA, such as the Capital Fund
formula, had been promulgated in the intervening years. However, until now there
has not been a comprehensive rewrite of those rules and HUD has relied in some
cases on the pre-existing regulations.

The Proposed Rule combines and reorganizes several existing regulations into a
revised 24 CFR Part 905. These include 24 Part 941 (Public Housing Development,
including Mixed-Finance), Part 968 (Comprehensive Grant Program, CIAP, and the
Vacancy Reduction Program), and Part 969 (continued operation as low-income
housing). The existing regulatory sections would be repealed.

Substantively, much of the rule is simply a restatement of the existing
regulations, conformed to current law, as described above. However, there are
some notable exceptions that are particularly important to the industry.

Among the most significant proposals are:

Deviations from HUD
Rules under Mixed-Finance. For the first time, HUD has proposed a
regulatory provision that would implement the statutory authority in QHWRA that
permits owners of mixed-finance projects to deviate from otherwise applicable
public housing requirements, such as rents and income eligibility. Eligible
developments are those where 20% or more of the units are nonpublic housing
rental units. Mixed-finance transactional documents typically contemplate such
"transformation” remedies. However, the regulatory means to implement them
has not been proposed until now.

Replacement Housing
Factor (RHF) Funds. The rule proposes a transition from the current
10-year RHF eligibility down to 5 years. HUD seeks specific comment on this
change. RHF was an important feature of the negotiated rulemaking for the
Capital Fund formula following QHWRA and was intended to ensure that there are
some funds available to redevelop distressed public housing aside from HOPE VI.

Other important changes from the existing regulations
include:

Total Development Costs (TDCs). PHAs
may request a TDC exception for integrated utility management, capital
planning, and other activities that maximize energy conservation and
efficiency.

Physical needs
assessments (PNAs). The rule adds a new requirement for project-based
physical needs assessments (PNAs) for all properties in a PHAs’s inventory.

Construction
Standards. With respect to construction standards, all development activity
would have to comply with a national building code, accessibility requirements
are specifically addressed, and design and construction standards would be
applied to modernization as well as development activity.

Management
Improvements. The cap on using Capital Funds for management improvements would
be reduced from 20% to 10% over a 3-year period. The primary reason cited for
the change is that PHAs can now use up to 50% of annual Capital Funds for
non-capital activities if they maximize their current authority to use 20% for
management improvements, 10% for administration, and 20% for Operating Fund
activities.

Title Insurance.
When acquiring property for development, a PHA would be required to obtain a
title insurance policy before taking title.

Mixed-Finance.
Subpart F of the rule, which (under Part 941) had previously been reserved
solely for mixed-finance development, now combines the regulations applicable
to conventional and mixed-finance development. Mixed-finance development is
specifically addressed at proposed section 905.604.

Rule are due by April 8, 2011. CLPHA will be reviewing the rule in more detail
and submitting comprehensive comments to HUD. If you have any questions or
comments regarding the Proposed Rule, please contact Todd Thomas, Senior
Research and Policy Analyst, (202) 638-1300 or Steve Holmquist, CLPHA
counsel, (202) 349-2462.